Causation may limit the unfair profits, as only the profits attributable to the violation must be re-turned and as the overall profits shall be reduced depending on all additional non-infringing ele-ments, such as the infringer’s performance (e.g. network, business knowledge, advertisement ef-forts) and other non-infringing elements that motivate the purchasing decision of consumers (e.g.
functionality of the product). For example, a music band plays in a festival one copyrighted song without authorization among a total of 10 songs. The unfair profits shall be based on a tenth of the profits made by the concert organizer. For a more complex example, think of multi-component products, such as a TV control software program incorporated into a smart-phone, which requires a delicate allocation of profits between the amount attributable to the software and the amount attributable to other non-infringing elements (e.g. design, functionality, other softwares and func-tionalities)41.
This allocation of profits is highlighted in a recent American case around the Apple-Samsung bat-tle. The courts had to determine, based on Article 35 of the U.S. Code, which provides “Whoever […] sells any [infringing] article of manufacture […] shall be liable to the owner to the extent of his total profit", the “article of manufacture,” whether the “article of manufacture” must always be the end-product sold to the consumer or whether it can also be a component of that product.
In 2007, Apple released the first-generation iPhone. It obtained several patents in connection with the iPhone, including three of particular importance to this case: D618,677 for the black rectangular front face with rounded corners; D593,087 for the rectangular front face with rounded corners; and D604,305 for the grid of 16 colorful icons on a black screen. Samsung released a series of smartphones after the iPhone was released. In 2011, Apple determined that these smartphones
41 Example inspired from a recent litigation between a Swiss company (SmartData) against Apple, alleging that Apple's iPhone, AppleTV and Remote are infringing upon their patent. See https://www.patentlyapple.com/patently-apple/2012/02/apple-sues-samsung-for-patent-infringe-ment-and-gets-sued-by-smartdata.html.
sembled the iPhone and sued Samsung for design patent infringement, claiming damages for in-fringement of the three above-named patents. The previous court ordered Samsung to pay USD 399 million, equaling the total profit Samsung made from selling the infringing smartphones on the assumption that unfair profits shall be calculated on the whole end-product as an “article of manufacture”42. The district court upheld the jury verdict and rejected Samsung’s argument to limit damages to the infringing ‘article of manufacture’ (35 U.S.C. Section 289) because the “in-nards of Samsung’s smartphones were not sold separately from their shells as distinct articles of manufacture to ordinary purchasers”43.
The US Supreme Court reversed the decision and remanded based on the following grounds: The term “article of manufacture” is “broad enough to encompass both a product sold to a consumer as well as a component of that product”44. Today many products are complex and incorporate many protected and non-protected items. For instance, a smartphone may contain a patented item that costs no more than USD 1 to produce and the whole smartphone finally may be sold for USD 500 to the end-user. It is not clear why damages shall be based on the whole product45. Just because the consumer cannot purchase the component separately from the end product, does not mean that the component is not an “article of manufacture.” Relevant Dicta: Justice Sotomayor offered the following example to differentiate between a single-component product and a multi-component product: “In the case of a design for a single-multi-component product, such as a dinner plate, the product is the ‘article of manufacture’ to which the design has been applied. In the case
of a design for a multicomponent product, such as a kitchen oven, identifying the ‘article of man-ufacture’ to which the design has been applied is a more difficult task” 46. The Court declined to answer whether in the patent issue at stake, the relevant article of manufacture was the smartphone or a particular smartphone component.
The Federal Circuit declined to decide the matter and further remanded to the district court. In July, 2017, the Northern District of California reheard the case. After procedural questions, the district court declined to grant a new trial, deferring the decision until the parties submitted further briefs outlining a test for how to determine whether the relevant “article of manufacture” is a
42 920 F. Supp. 2d 1079 (N.D. Cal. 2013); 926 F. Supp. 2d 1100 (N.D. Cal. 2013).
43 786 F.3d 983 (Fed. Cir. 2015).
44 Samsung Electronics Co., Ltd., et al. v. Apple Inc., US Supreme Court, 6 December 2016, case number 15-777.
45 For the anecdoct, Justice compared the case with the VM-Auto: do people by a car only for their great design? It is absurd to rely on the whole product. I can’t get over the thought that nobody buys a car, even a Beetle, just because they like the way it looks.
46 Samsung Electronics Co., Ltd., et al. v. Apple Inc., US Supreme Court, 6 December 2016, case number 15-777, Justice Sotomayor’s opinion.
component or the end-product (mainly who bears the burden of proof). The district court ap-proved an Amicus curiae brief (submitted by the United States Government in support of neither party) based on a four-factor test, and awarded a new trial. This is the final decision thus far;
the decision from the new trial has not yet been issued. The following are the four factors de-tailed in the U.S. Government’s amicus brief:
• “[T]he scope of the design claimed in the plaintiff’s patent, including the drawing and written de-scription”;
• “[T]he relative prominence of the design within the product as a whole”;
• “[W]hether the design is conceptually distinct from the product as a whole”; and
• “[T]he physical relationship between the patented design and the rest of the product,” including whether “the design pertains to a component that a user or seller can physically separate from the product as a whole,” and whether “the design is embodied in a component that is manufactured separately from the rest of the product, or if the component can be sold separately.” 47
In lieu of this approach (determining whether or not unfair profits shall be determined on the whole end-product based on a four-factor test), we believe that the profits should always be allocated by taking into account all infringing and non-infringing elements, such as the functionality of the product (mainly for works of applied art), the price and network of the infringer, and the differences between the protected good and the infringing good (e.g. whether it is an imitation or a slavery copy)48.
To highlight this approach, it is helpful to consider a few other cases. In a German case (“Tripp-Trapp”) opposing the holder of the exclusive user rights to the "Tripp-Trapp" children's highchair against a defendant who marketed the "Alpha" similar children's highchair, the German Supreme Court recalled that the causality principle requires only the part of the profits that derives from the infringement to be surrendered. According to the causality principle, it is appropriate to take ac-count not only aesthetic elements and whether the disputed object is a copy or imitation, but also other non-infringing elements such as functionality and the price of the object. Consequently, the unfair profits were reduced by about 50% due to the functionality of the chair and the lower price
47 Samsung Electronics Co., Ltd., et al. v. Apple Inc., US Supreme Court, 6 December 2016, case number 15-777, Brief for the United States as amicus curiae supporting neither party https://www.scotusblog.com/wp-content/uploads/2016/06/15-777npUnitedStates.pdf.
48 For an analysis of all criteria, see Benhamou, p. 60 (German Law), p. 77 (French Law), p. 100 (American Law), p. 188 (Swiss Law).
which prominently motivated the purchasing decision of the consumers as well as the infringer network49.
Similarly in another German case (“four lines”) opposing the Adidas company against a counter-feiter, the Frankfurt court reduced the profit made by the sale of infringing shoes up to 80%, as the purchasing decision was not only based on infringing elements (similarity between 4 and 3 lines) but also on the selling skills of the infringer. In a nuts hell, 4 lines do not equal 3 lines50.